December 23, 2018 | With Stocks Plunging, How Deep Is Hell?

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

“Nothing goes to hell in a straight line, not even stocks.” This time-tested piece of wisdom comes from Wolf Richter, editor of Wolf Street, by way of a headline on his blog. Richter is one of the more astute commentators on the financial scene, and his observation has obvious implications for a stock-market decline that is starting to seem relentless, particularly for investors who have chosen to ride it out. So when will it reverse, wreaking vengeance on by-now giddy bears? Richter see this happening early in 2019, when the tax selling that has intensified the market’s weakness in recent weeks abates. He notes, however, that the plunge so far looks relatively modest when viewed against the epic rise of stocks since 2009. You can see this graphically in the chart (inset).

AAPL Due for an Upturn

The chart colors my own outlook as well, as it may yours, because of the enormous amount of wide-open space beneath current levels. Indeed, the index has a great deal of room to fall before it might be expected it to pick up ‘structural’ support from a low near 1800 recorded early in 2016. That would equate to a drop of 39% from September’s high of 2940. If the S&Ps were to subsequently rally and then fall anew, perhaps to sub-1500 levels, it would not contradict Richter’s observation about the path to hell; rather, it would simply stretch the popular imagination concerning how deep hell may lie.

My technical outlook somewhat complicates the picture because I have weighted AAPL above all other stocks. It plummeted 15 points last week, to a low that fell an inch from the 150.63 target I’d sent out to subscribers well ahead of the move. This number is a ‘Hidden Pivot support’ — one sufficiently compelling to imply that a tradeable bounce from exactly this level is likely. If so, given that AAPL is the second most valuable stock in the world behind MSFT, the broad averages are almost certain to rally along with it. This scenario is not chiseled in stone, however. Although the ‘hidden’ support can be expected to work, if instead it is overwhelmed, that would suggest sellers are not yet finished. The next southbound stop would be 144.82, a Hidden Pivot that possesses the same telltale quality. If it fails as support, look out below! AAPL at $100 a share? No one who has experienced a bear market would deny this is possible. We should remain prepared for the “impossible” nonetheless.